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MAYER HOFFMAN MCCANN P.C. – AN INDEPENDENT CPA FIRM

A publication of the Professional Standards Group

MHMMessenger

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The FASB has amended the reporting requirements for reclassifications out of accumulated other comprehensive income. The changes are described in Accounting Standards Update 2013-02, and they take effect on a staggered basis for public and private companies. Public companies must comply with the amended requirements this year (for reporting periods beginning after December 15, 2012, meaning first quarter 2013 for calendar-year companies), while private companies were exempted from certain provisions and given additional time to implement the new requirements. Private companies may adopt the changes now, if they wish, but they are not required to comply until reporting periods beginning after December 15, 2013. This Messenger highlights the requirements and options available under the amended requirements.

How will this change affect you?

The amendments require the use of a new format so that users of financial information can find certain information about the reclassifications conveniently located in one place. The information to be presented in this new format is already substantially required under US GAAP.

April 2013

Reporting of Reclassifications from Accumulated Other Comprehensive Income

The new format affects companies that have other comprehensive income (OCI), a term that describes gains and losses that are initially excluded from net income for an accounting period. Examples include: (a) gains and losses on cash flow hedges, and (b) unrealized gains and losses on available-for-sale securities. When a company has OCI, the total OCI for each period is transferred to a separate component of equity known as accumulated OCI in the statement of financial position.

Many types of entities fall within the scope of the amended requirements. In general, the requirements apply when an entity reports items of OCI in any reporting period and it provides a full set of financial statements to report financial position, results of operations, and cash flows. This broad scope includes defined benefit pension plans and other employee benefit plans, but, in practice, these entities typically do not have items of other comprehensive income. The amended requirements do not apply to not-for-profit entities because they do not use other comprehensive income.

The amended reporting requirements

Under the amended requirements, companies are required to provide the following information about items reclassified out of accumulated other comprehensive income (AOCI):

1. A report of the changes in the components of AOCI for the current period.

2. Information about the effects on net income of significant amounts reclassified out of AOCI. This

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information can be provided in one of two ways, depending on the nature of the item(s) reclassified:

• If US GAAP requires that the item be reclassified in its entirety in the same reporting period, then companies must report the effects on the line items of net income. This information can be presented either parenthetically on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements. Although companies have options, those with numerous reclassifications will likely find the notes are a more user-friendly option.

• If US GAAP does not require that the items be reclassified directly to net income in their entirety in the same reporting period, then companies are required to provide cross-references to other disclosures that provide

additional details about these amounts. Items that fall into this category are reclassified to balance sheet accounts, rather than being reclassified directly to income or expense in the same reporting period. An example of an item of this nature is a reclassification of amortization of defined benefit pension items.

The appendix to this Messenger provides illustrative disclosures. Tables 1 and 2 provide illustrations of disclosures provided in a single footnote to the financial statements. Tables 3 and 4 provide illustrations of disclosures of components of OCI in the notes and the effects on line items of net income provided parenthetically on the face of the financial statements.

Private companies are exempt from some of the disclosure requirements for interim periods as summarized in the following table.

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Comparison of Requirements for Public and Private Companies

Public companies Nonpublic companiesAnnual and

interim periods Annual periods Interim periodsFor reporting periods beginning after December 15, 2012Reporting of changes in components of AOCI (Table 1 or 3) Required Optional Optional

Information about effects on net income of significant amounts reclassified out of AOCI (Table 2 or 4).

Required Optional Optional

For reporting periods beginning after December 15, 2013Reporting of changes in components of AOCI (Table 1 or 3) Required Required Required

Information about effects on net income of significant amounts reclassified out of AOCI (Table 2 or 4)

Required Required Optional

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM service provider to further discuss the impact on your financial statements.

For additional background on prior steps taken by the FASB to increase the prominence of comprehensive income and the effects on net income, see MHM Messengers 11-11, 3-12, and 17-12.

For more information

If you have any specific questions, please contact James Comito of MHM’s Professional Standards Group or your MHM service professional. You can reach James directly by email at jcomito@cbiz.com and telephone at 858-795-2029.

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MHM Messenger 7-13 Appendix: Illustrative Disclosures, Table 1

Information presented in a single footnote to the financial statements

Entity XYZ Notes to Financial Statements

Changes in Accumulated Other Comprehensive Income by Component (a) For the Period Ended December 31, 201X

Gains and Losses on Cash Flow

Hedges

Unrealized Gains and Losses on

Available-for-Sale Securities

Defined Benefit Pension

Items

Foreign Currency

Items TotalBeginning balance $ (1,200) $1,000 $(8,800) $1,300 $(7,700)

Other comprehensive income before classifications 3,000 2,500 (3,000) 1,000 3,500Amounts reclassified from accumulated other comprehensive income (750) (1,500) 4,500 - 2,250

Net current-period other comprehensive income 2,250 1,000 1,500 1,000 5,750Ending balance $1,050 $2,000 $(7,300) $2,300 $(1,950)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

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MHM Messenger 7-13 Appendix: Illustrative Disclosures, Table 2

Information presented in a single footnote to the financial statements (continued)

Entity XYZ Notes to Financial Statements

Reclassifications out of Accumulated Other Comprehensive Income (a) For the Period Ended December 31, 201X

Details about Accumulated Other Comprehensive Income Components

Amount Reclassified from AOCI

Affected Line Item in the Statement Where Net Income is Presented

Gains and losses on cash flow hedgesInterest rate contracts $ 1,000 Interest income/(expense)Foreign exchange contracts 2,500 Sales/revenueCredit derivatives (500) Other income/(expense)Commodity contracts (2,000) Cost of sales

1,000 Total before tax(250) Tax (expense) or benefit

750 Net of taxUnrealized gains and losses on available-for-sale securities

$2,300 Realized gain/(loss) on sale of securities(285) Impairment expense

Insignificant items (15)2,000 Total before tax(500) Tax (expense) or benefit

$1,500 Net of taxAmortization of defined benefit pension items

Prior-service costs $(2,000) (b)Transition obligation (2,500) (b)Actuarial gains/(losses) (1,500) (b)

(6,000) Total before tax1,500 Tax (expense) or benefit

$(4,500) Net of tax

Total reclassifications for the period $(2,250) Net of tax

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(a) Amounts in parentheses indicate debits.

(b) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See pension footnote for additional details.)

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MHM Messenger 7-13 Appendix: Illustrative Disclosures, Tables 3 &4

Information presented parenthetically on the face of the financial statements

Entity ABC Notes to Financial Statements

Changes in Accumulated Other Comprehensive Income by Component (a) For the Period Ended December 31, 201X

Gains and Losses on Cash Flow

Hedges

Unrealized Gains and Losses on Available-for-Sale Securities Total

Beginning balance $(5,000) $8,000 $3,000

Other comprehensive income before reclassifications 7,000 8,000 15,000

Amounts reclassified from accumulated other comprehensive income (b) (2,250) (3,000) 5,250

Net current-period other comprehensive income 4,750 5,000 9,750Ending balance $(250) $13,000 $(12,750)

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(a) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) See statement of income below for details about these reclassifications.

Entity ABC Statement of Income

For the Period Ended December 31, 201X

Revenues (includes $4,000 accumulated other comprehensive income reclassifications to net gains on cash flow hedges) $122,500Expenses (includes ($1,000) accumulated other comprehensive income reclassifications for net losses on cash flow hedges) (32,000)

Other gains and losses 5,000Gain on sale of securities (includes $4,000 accumulated other comprehensive income reclassifications for unrealized net gains on available-for-sale securities) 4,000Income from operations before tax 99,500Income tax expense (includes ($1,750) income tax from reclassification items) (24,875)Net income $74,625

Table 3

Table 4